Like Donald Trump’s Hair, ACN May Not Be What It Appears To Be

Posted on Oct 31, 2010 in News, Pyramid Schemes, Scheme Alerts

State regulators and television news media have recently shined a light on what many people thought was one of America’s fastest growing multi-level marketing companies, ACN, based in North Carolina. ACN’s great claims to fame and legitimacy have been its reputed fast growth and its television endorsements by celebrity, Donald Trump.

But new developments and revelations are uncovering some troubling – even for believers – aspects of ACN, requiring a new appraisal.

Donald Trump, a famous television personality and, for some people, a trusted business guru, is telling consumers that becoming an ACN sales representative is a great “deal.” But could he be wrong or possibly misinformed about the multi-level marketing (MLM) business model?

Like the Famous Hair, ACN's Reality May Be Different from the Image

Despite Donald Trump’s promises and endorsements, the state of Montana charged ACN with operating a pyramid scheme. It sought refunds for its citizens who invested. The state also wants to impose fines on ACN for misleading its people. After negotiations, the state opted to require more training for ACN recruits.

There have also been probing news inquiries into ACN in Los Angeles and North Carolina, where the company appeared to be concealing facts. In Los Angeles, reporters were cursed on camera (see video) for asking about the $500 fee to join ACN and they were barred from a Trump recruitment rally. In North Carolina, reporters were similarly barred from the Trump rally or the featured ACN “training” event.

The investigative reporter in North Carolina reported that the training event was run by two ACN reps who had recently been convicted for participating in an illegal drug ring while they were ACN reps. The North Carolina media also encountered the same brick wall as those in Los Angeles did when they started asking for real figures on income averages of ACN salespeople, rates of quitting, and who actually gets most of the commission money. They were told that ACN did not reveal facts about the financial plight of consumer/distributors because the company is “privately held.”

Here are some issues and facts coming to light, though hard data, if it is ever disclosed, may later change these indicators:

1. The average, and perhaps nearly all, ACN’s sales reps appear to be losing money!
In Canada, ACN is required to disclose the “average” income of ACN sales reps. The ACN Canadian website reports the average of just the “active” reps to be only about $9 a week. That’s less than the cost of joining and actively participating. Add in the “in-actives”, factor potential “top loading”(the largest share of the commission going to the top 1-5% of recruiters) and then consider business costs, and it appears that hardly anyone could be making money in ACN in Canada, except the insiders and those that got in very early. Canada had prosecuted ACN several years ago under rules governing multi-level marketing companies, but a judge stopped the prosecution, claiming – ironically – that the government had not given enough evidence that ACN was even a MLM company. Australian regulators also prosecuted ACN as a pyramid scheme and the court upheld the prosecution, but the ruling was later over-turned by a higher court.

The state of Montana obtained hard data from ACN and concluded that virtually no one in that state was making a profit who had signed up as an ACN sales person. Montana is seeking fines and refunds.

2. ACN is, apparently, not growing!
ACN promoters often tout the company as moving rapidly toward a billion dollars in revenue. Consumers are exhorted to “get in now”. ACN’s fast growth is hyped as one of the main reasons for signing on. Yet, according to ACN’s own statements, the company has, apparently, not increased its revenue or customer base at all in four years! In 2006 ACN reported to the FTC that it had exactly the same number of customers and total revenue as it told NBC-affiliate reporters in Charlotte, NC in 2010. But one figure did change during this time. ACN doubled the number of salespeople! In that time, the number of USA sales reps went from 50,000 to 100,000 according to ACN. So, based on ACN’s data, more of ACN’s money would have to be coming directly from the salespeople. The data would also indicate that the mean average income of all salespersons would have to have decreased over the last four years, while the company itself did not grow.

3. There may not be market need or demand for ACN’s showcase product, residential video phones!
Donald Trump is hyping ACN’s video phones, but is there really a demand for them? In Charlotte, NC, the news media noted that no one knows how many ACN phones are in operation now. Video phone connections can be done over the Internet for free via Skype on a computer and on smart cell phones too. So, can ACN salespeople find enough retail customers willing to pay for ACN video phones and its proprietary service charges?

ACN’s video phones are not portable and they require a monthly service charge. Of course, they are no good at all for video unless someone you are calling also has the same phone and the ACN service. So, to make the system work, a salesperson may need several phones and phone service contracts, costing well over a thousand dollars. ACN offers “Family Plan Lines” but they are for calls made on ACN’s network only and cannot be used to call non-ACN phone numbers. These lines cannot be used for a primary phone line and do not have 911 access. Video Phone purchases require a 2 year commitment. Early termination fees for services and equipment apply.

At present very few other brands of residential video phone are on the market. The number of consumers currently using them is unknown. Future interest or demand is also unknown. Even the CEO of the WorldGate, the manufacturer of ACN’s phone, has acknowledged that a mass market for these phones may not currently exist. However, he personally believes it will develop “over the next three-to-five-year time frame.”

4. Even if residential video phones were not in demand by the general public, and even if each ACN sales person only bought or sold just a few; and even if ACN did not make much profit on each purchase, ACN’s insiders could still make millions!

ACN sales reps don’t just sell video phones. Many of them buy the product as part of the income plan. To get “points” required for gaining commissions from others they recruit, many ACN reps will buy the flagship product. They may buy them as samples, demos and for their own personal use. Of course, to get value they may need to buy more phones for someone to talk to! The ACN video phones can only do video with each other.

Consumers may sign up as ACN sales reps, buy the phone for themselves (to get pay plan points), then persuade a few friends and family to buy them or give the phones to them as gifts (so they can work), then recruit others to sign up as ACN sales reps also to do the same (to get the promised income). The buy-recruit-buy-recruit process, according to the pay plan, is designed to continue forever. There is no limit on the number of salespeople recruited in any geographic area. As long as recruitment continues, the money continues to flow up to those higher on the recruitment chain, according to the pay plan. Thus, many ACN phones may be purchased as a result of the ACN pay plan, whether there is “demand” from the general public for the phones themselves or not.

ACN told NBC-affiliate news in North Carolina that it has 200,000 salespeople. It has reportedly committed to ordering 300,000 phones from the manufacturer over a two-year period. That is not very many phones to sell, per salesperson, or for all the salespeople to make a profit from. ACN might be able to meet its goal by just getting each sales rep to buy one a year.

But even if ACN reps could not or did not sell many phones or make any profit on them and even if the ACN company itself did not make much profit selling only a few phones to each sales rep and their friends and family, ACN insiders might still make a lot of money another way.

ACN’s owners are also among the owners of the company that makes the video phones, WorldGate. WorldGate (WGAT.OB) happens to sell its stock on the over-the-counter stock market. According to WorldGate’s 2009 annual report to the Securities & Exchange Commission, when ACN’s owners took over WorldGate, they received over 202 million shares of WorldGate stock, 63% of the total, plus warrants to buy another 140 million. ACN pledges to buy 300,000 phones from WorldGate over the next two years. So, even if ACN or its sales reps did not make a profit from the reps’ purchases or sales of phones, WorldGate’s revenue could go way up and so might stock and warrants held by ACN insiders.

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